Where does foreclosure fraud go from here?

The pile of federal, state and local officials landing on the country’s mortgage lenders is starting to get pretty deep. State Attorneys General, the U.S. Attorney General, governors, state legislators, U.S. Representatives and Senators, all are calling for lenders to halt foreclosure proceedings until the issue of fraudulent paperwork can be sorted out. Many of the same officials are also calling for criminal charges against guilty companies and individuals. Things, as they say, are complicated.

One of the stickiest issues is proving who actually owns the original mortgage loan note because the owner of the note has sole legal right to foreclose on the mortgaged property. After Wall Street decided to make more money by bundling mortgages together, getting them credit-rated and selling them as securities, they were subsequently often sold several more times. For many of those mortgages, no one knows where the original loan note is. Often enough no one is even sure who is supposed to own the note. The lenders are still processing the loans(taking the payments, or not), but do not have and cannot get the original notes. They are under tremendous pressure because of the sheer numbers of loan defaults – they have to foreclose so they can recoup something from the sale of the property.

The lenders turn to “paper-mills” that can’t find the original notes, either. But they guarantee delivery of requested documents within a deadline. So they manufacture a replacement document because they know the lender and the judge in the courtroom will be too busy to notice little discrepancies like forged signatures of attorneys and bank officers, inconsistent dates and improper notary stamps. It just won’t be a problem because the homeowners being foreclosed won’t be able to afford defense lawyers and won’t know enough to be able to defend themselves. And so things went for two years.

There were occasional but persistent stories right from the start about homeowners coming home from work to find the locks changed and the house empty, without receiving any notice from the lender. There were stories about homeowners finding problems with document dates and document facts but being ignored by lenders and judges. Most put these stories down to disgruntled, down-on-their-luck homeowners. After all, how could you possibly not know the bank was about to evict you?

It turns out that most of those stories were probably true. If the lender fails to tell you about imminent eviction(by officially serving the correct paperwork), how would you know? When the banks are so confused they are evicting people from homes that do not even have mortgages on them, it causes questions about what else the banks might be wrong about? When two banks both try to foreclose on the same property, what other mistakes are they making? The lenders are admitting in sworn testimony that they don’t read or verify the truth of the contents of foreclosure affidavits. They are proving with their actions they do not know who owns given properties.

So it seems foreclosures do need to stop for a while. There are legal requirements for foreclosure and the past few years has made a farce of those legalities. Everyone involved has played their part in undermining justice for the homeowners – the lenders, lawyers, judges, notaries and document-processing companies. Not a single person is trying to justify non-payments of mortgage loans, but legal requirements for foreclosure must be met.

If twenty people witnessed a murder and the guilty party was not informed of his Miranda rights and was questioned without a lawyer present, he would be set free. Those are legal requirements, not just niceties to attend to whenever there is time or nothing better to do. Homeowners deserve the same protection of the law. If a lender cannot prove ownership of the original mortgage loan note, does not properly serve the required notice, does not file the required documents with the court containing the required signatures, proper dates and notary seals, foreclosure should not be allowed to proceed. These legal requirements are not mere “technical issues” as some lenders have facetiously tried to claim.

Criminal charges should be filed against guilty companies and individuals. It will greatly slow down the country’s economic recovery. It will prolong the pain of a reeling housing market. It will cause many more financial institutions to go bankrupt(and rightly so). But it is a necessary thing. To do anything less would be to hold other values higher and more important than justice and the law.